Raymond James expects Iraqi oil surge to slow in 2016

Published 5:39 am, Monday, December 7, 2015

HOUSTON — Iraq had added roughly 1 million barrels per day of oil production in 2015, surprising analysts and adding to a global glut of crude that has driven down international oil prices.

But those rapid gains are likely to fall off in 2016 and beyond, as Baghdad slows investment in the country’s oil fields and boost from short-term gains fades, according to a new analysis by financial services firm Raymond James.

Following nearly a decade of steady, 200,000 barrel per day growth each year, Iraqi oil production jumped from roughly 3.4 million barrels per day in February of this year to 4.4 million barrels per day in June. The second largest member of the Organization of Petroleum Exporting Countries, Iraq was ranked the world’s fastest growing oil producer in 2015, according to an analysis by financial services firm Raymond James.

Two factors largely drove those increases, Raymond James said.

First, the Iraqis split the benchmark grade of crude oil that they offer into two separate barrels back in May. The split helped to tighten the consistency of the oil Iraq shipped to its customers, boosting refinery usage and clearing a bottleneck that had trapped as many as 350,000 barrels per day of Iraqi exports, Raymond James analysts said.

Second, production from Kurdistan, in the northern part of Iraq, has grown from an average of about 200,000 barrels per day in 2012 and 2013 to roughly 550,000 barrels per day average in 2015. Those gains have been made thanks to better pipeline infrastructure and increased Kurdish autonomy from Iraq’s central government in Baghdad, Raymond James said.

Together, those factors account for as much as 700,000 barrels per day of additional Iraqi production. The Raymond James analysts said they expect the country’s production to keep growing in 2016, but don’t expect a similar surge.

Recently, Iraq has struggled to sustain investment in its oil and gas fields thanks to both low prices and the country’s ongoing war with the Islamic State in the northern part of its country.

The war has had little impact on existing oil production. Iraq’s three largest oil fields and as much as 80 percent of its oil production sits far from the fighting along near the southern tip of the country. Much of the other output comes from Kurdistan, which lies closer to the front lines but is well protected by Western-supported Kurdish forces.

But the defense outlays have eaten into government funding that could have instead flowed into the country’s oil fields. The Iraqi rig count has fallen by about 48 percent from its June 2014 peak, and the government has told contractors to throttle their spending in the oil patch, Raymond James analysts said.

The firm projects that Iraqi production growth will mostly flatten near 4.2 million barrels per day for the rest of 2015 before slowing to roughly 400,000 barrels per day in 2016. Longer term, analysts expect production growth to slow further.